Heating Oil Inventories Will Stay at Staggering Levels Over Thanksgiving
(image: oilsoup.com)
Turkeys won’t be the only overabundant resource this Thanksgiving. According to David Bird of the Wall Street Journal, heating oil stockpiles are at their highest point since Christmas in 1998, and the mild Thanksgiving weather forecast will do little to lower inventories. Coming off of the quietest hurricane season since 1997, “heating oil’s fate rests solely on winter demand, and forecasts look likely to disappoint market bulls.”
Crude oil prices are currently hovering between $75 and $80 a barrel. If they hold at this level, OPEC is unlikely to make any changes in policy. Meanwhile, the US is using 4.1 percent less oil than it was a year ago, which translates to roughly 800,000 fewer barrels a day. As the world’s largest energy consumer, this throttling back on US consumption has prompted many refiners to cut production. Refiners are operating at “below 79.5% of operable capacity,” putting out 3.6 million barrels less a day than they’re capable of.
Even in the high-consuming Northeast region, heating oil stocks grew by more than 1 million barrels in the week ending November 13, according to the Energy Information Administration. Supplies of heating oil are at their highest since December 25, 1998. And national stocks of crude cover 58.7 days of current demand—10 days more than the five-year average.
For now, says Carl Larry, president of Oil Outlooks and Opinions, refineries will keep their current low-level production until distillate stocks (heating oil, diesel) fall below 160 million barrels.
With a glut of supply, and warmer-than-normal expected temperatures in the Northeast this winter, the result would normally mean a drop in heating oil prices. However, it’s not a given considering many experts lately have pointed out that oil prices are not closely linked to supply and demand. As HeatingOil.com reported last week, Daniel Yergin, head of IHS Cambridge Research Associates, pointed to speculation as a reason why prices are double last years, even with a glut of supply. Supply and demand simply do not govern oil prices as they maybe once did, as many investors trade on expectations and assumptions, rather than current conditions.
If the situation does lower prices, there will be much for heating oil consumers to be thankful for this Thanksgiving.
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